Idea Watch

After the Great Recession, the American Enterprise Institute, a Washington think tank, needed to compete even harder for every dollar. Arthur C. Brooks and his colleagues set out to demonstrate its true impact to a generation of data-savvy philanthropists.

AEI’s output is pretty straightforward: books, research articles, op-eds, media appearances, and so on. Determining its impact meant measuring its competitive standing in the marketplace of ideas.

Brooks describes two of the metrics AEI uses: how many op-eds its scholars publish in prominent newspapers and how often those scholars are called by Congress to give testimony. Measured against its four leading competitors, AEI can claim 36% of op-eds over the period 2015–2017 and the most testimonies (by a wide margin) in the years 2009–2017.

Spotlight

Companies’ core businesses and functions have largely replaced long-range planning models with methods that allow them to adapt and innovate more quickly. HR departments are starting to use agile talent practices to reflect and support what the rest of the organization is doing. In a sense, they are going “agile lite”—adopting the general principles but not all the protocols from the tech world.

In this article Wharton’s Peter Cappelli and NYU’s Anna Tavis discuss the profound changes companies are making in six critical areas. Annual performance appraisals are in many cases the first traditional practice to go. As employees work on shorter-term projects, often run by different leaders and organized around teams, companies are recognizing that workers need more-immediate feedback throughout the year so that they can “course-correct” mistakes, improve performance, and learn through iteration.

Coaching is another key item: getting managers to move from judging employees to helping them develop day to day. Teams, rather than individuals, are the focus now that work is increasingly organized project by project, and this means that organizations must contend with multidirectional feedback, give decision rights to the front lines, and handle more-complicated team dynamics. Compensation is changing as well: Some companies are switching to spot bonuses, while others are dropping bonuses altogether and adjusting salaries much more frequently according to changes in performance and market rates. Recruiting has become faster and nimbler, and new learning and development practices help employees identify and access the skills and training they need to advance.

HR has not had to change in recent decades nearly as much as have the line operations it supports. But now the pressure is on, and organizations from IBM to Regeneron Pharmaceuticals to the Bank of Montreal are paving the way.

Co-Creating the Employee Experience

Companies adopting agile talent practices are giving a lot of thought to how employees experience the workplace—in some cases, treating them like customers. In this interview Diane Gherson, IBM’s chief human resources officer, discusses how that’s playing out as the iconic tech firm revamps its business model.

One Bank’s Agile Team Experiment

As mobile banking took hold and customers became increasingly aware of what they could do for themselves, the global banking group ING launched a pilot transformation in its Dutch retail unit, replacing most of its traditional structure with a fluid and more responsive organization composed of tribes, squads, and chapters. Dominic Barton, Dennis Carey, and Ram Charan report on this new way of working, which is being rolled out more widely across the bank.

Features

Great innovators have long known that the secret to unlocking a better answer is to ask a better question. Applying that insight to brainstorming exercises can vastly improve the search for new ideas—especially when a team is feeling stuck. Brainstorming for questions, rather than answers, helps you avoid group dynamics that often stifle voices, and it lets you reframe problems in ways that spur breakthrough thinking.

After testing this approach with hundreds of organizations, MIT’s Hal Gregersen has developed it into a methodology: Start by selecting a problem that matters. Invite a small group to help you consider it, and in just two minutes describe it at a high level so that you don’t constrain the group’s thinking. Make it clear that people can contribute only questions and that no preambles or justifications are allowed. Then, set the clock for four minutes, and generate as many questions as you can in that time, aiming to produce at least 15. Afterward, study the questions generated, looking for those that challenge your assumptions and provide new angles on your problem. If you commit to actively pursuing at least one of these, chances are, you’ll break open a new pathway to unexpected solutions.

As B2B offerings become more commoditized, the subjective, sometimes quite personal considerations of business customers are increasingly important in purchases. To discover what matters most to B2B buyers, the consulting firm Bain analyzed scores of quantitative and qualitative customer studies. All told, it identified 40 discrete “elements of value,” which fall into five categories: table stakes, functional, ease of doing business, individual, and inspirational. The elements range from strictly objective—those related to pricing and specifications, for example—to more subjective ones, such as reducing the buyer’s anxiety and enhancing his or her reputation. Understanding this full range of rational and emotional considerations, and tailoring the value proposition to the ones customers prize most, is critical to avoiding the commodity trap.

One of only a few African-American CEOs in the Fortune 500, Frazier gained widespread attention when he withdrew from President Trump’s business advisory council after the events of August 2017 in Charlottesville, Virginia. He says, “I didn’t see this as a political issue. It’s an issue that goes to our fundamental values as a country.”

Frazier grew up in the inner city, in a household that valued education highly. He was fortunate, he says, to be bused out of his neighborhood to “the best schools in Philadelphia,” which he credits with closing “the opportunity gap” for him. Despite a degree from Harvard Law School, however, he had to work to become “user-friendly” for the clients and partners at his white-shoe law firm.

In this conversation with HBR’s editor in chief, Frazier talks about balancing short-term pressures with long-term needs, the dauntingly high percentage of research projects that fail, the rationale for pricing lifesaving drugs so high, and the importance for a CEO of diffusing power “to people in a position to make a difference.”

Some experts argue that corporate leaders are starving their firms of investment capital by making excessive payouts to shareholders, thereby undermining innovation, employment opportunity, and economic growth. As evidence, they point to S&P 500 firms’ using 96% of their net income for repurchases and dividends.

A closer look at the data shows that the amounts going to shareholders at the expense of internal investment are less than claimed. The problem lies in the ratio used—shareholder payouts as a percentage of net income—which fails to take into account offsetting equity issuances as well as actual R&D expenditures.

The percentage of income potentially available for investment that goes to shareholders is not 96% but a much more modest 41%. After paying shareholders, S&P 500 firms are at near-peak levels of investment and have huge stockpiles of cash for exploiting future opportunities.

There may well be severe corporate governance problems in the S&P 500, but the data suggests that excessive shareholder payouts is not one of them.

The majority of board chairs are former CEOs, who are used to calling the shots and being stars. So it’s no surprise that many start behaving as if they are alternative chief executives of their firms. That sows conflict and confusion at the top. In addition, as research by INSEAD’s Corporate Governance Centre shows, the two jobs are distinctly different—and so are the skills needed in them. The chair leads the board, not the company, and that means being a facilitator of effective group discussions, not a team commander.

After surveying 200 board chairs and interviewing 140 chairs, directors, shareholders, and CEOs, INSEAD has distilled the requirements for the chair’s role down to eight principles: (1) Be the guide on the side; show restraint and leave room for others. (2) Practice teaming—not team building. (3) Own the prep work; a big part of the job is preparing the board’s agenda and briefings. (4) Take committees seriously; most of the board’s work is done in them. (5) Remain impartial. (6) Measure the board’s effectiveness by its inputs, not its outputs. (7) Don’t be the CEO’s boss. (8) Be a representative with shareholders, not a player. While many executives need to shift gears and mindsets to follow these, successful chairs say the effort pays off.

There’s no question that most American industries have become more concentrated. Economists are trying to understand whether this is necessarily a bad thing for competition.

The short answer: It’s complicated. Innovation superstars like Google have created winner-take-most markets largely by exploiting network effects, not through predatory behavior. However, research from the wider economy (including the tech sector) uncovers classic signs of unhealthy concentration: rising profits, weak investment, and low business dynamism.

The government’s approach to antitrust violations is due for an overhaul. And regulators need to pay more attention to protecting economic vitality and consumer well-being — and less to industry lobbyists.

Firms spend millions of dollars annually on whistle-blower hotlines, training, and other efforts to ensure adherence to laws, regulations, and company policies. Yet malfeasance remains entrenched in the corporate world. Why? Too many firms treat compliance as a box-checking exercise, making employees sit through training and attest that they understand the rules, but failing to assess the effectiveness of their compliance programs, or doing so with faulty metrics.

The authors explain how we reached this sorry state—and how we can remedy it. Firms should start by linking compliance initiatives more closely to specific objectives: preventing misconduct, detecting it, or aligning policies with laws and regulations. Then, using careful model design and some creativity, firms can develop better metrics to measure what’s working and what isn’t.

Any list of top CEOs reveals a stunning lack of diversity. Among the leaders of Fortune 500 companies, for example, just 32 are women, three are African-American, and not one is an African-American woman. What’s going on?

The authors studied the careers of the roughly 2,300 alumni of African descent who have graduated from Harvard Business School since its founding, focusing on the 67 African-American women who have attained top positions in corporations or professional services firms. These women thrived, they found, because of three characteristics that are key to resilience: emotional intelligence, authenticity, and agility. The women were adept at reading interpersonal dynamics and managing their own reactions; crafting their identities; and transforming obstacles into opportunities.

Beyond personal strengths, the authors say, another factor was critical: nurturing relationships with mentors who recognized the women’s talent and made it their business to support them.

The insights gleaned are important not just for African-Americans and women; they’re essential for any manager who recognizes that an organization’s diversity is its strength.

Many minority members fail to understand that their career mobility can be affected by their colleagues’ feelings of familiarity or closeness with them. Even those who do understand this can find building workplace relationships across racial boundaries difficult. Being one’s true self, disclosing elements of one’s personal life, and forming social connections are harder when attempted across a demographic boundary such as racial background. Helping workplace relationships flourish among people of differing races may require special effort.

The authors suggest several strategies that organizations can use to make employees from varied demographic groups feel comfortable engaging with one another: (1) Recognize the role that structure—such as formal icebreaker games or having a leader introduce everyone at a gathering—can play in easing the discomfort of free-form socializing. (2) Adopt a learning orientation by asking open and curious questions that demonstrate that being different makes someone more valuable. (3) Consider creating a buddy system of informal mentorship, in which more-experienced employees help facilitate social relationships for new hires.

Experience

Approximately 150 million people in North America and Western Europe now work as independent contractors, most of them in knowledge-intensive industries and creative occupations. The authors studied 65 of them in depth and learned that although they feel a host of personal, social, and economic anxieties without the cover and support of a traditional employer, they also say they chose independence and wouldn’t give up the benefits that come with it.

Many of these workers have created a “holding environment” for themselves by establishing four connections: (1) place, in the form of idiosyncratic, dedicated workspaces that allow easy access to the tools of their owners’ trades; (2) routines that streamline workflow and incorporate personal care; (3) purpose, to create a bridge between personal interests and motivations and a need in the world; and (4) people to whom they turn for reassurance and encouragement. These connections help independent workers sustain productivity, endure their anxieties, and even turn those feelings into sources of creativity and growth.

A fictional hotel company just finished a year-long, $9 billion acquisition, which means it’s now the second largest lodging company in the world with nearly 4,800 hotels and just over 1 million rooms in 100 countries. The merger left the firm with 21 brands in its portfolio, including a handful that overlap in terms of positioning, price tier, and geography. When the acquisition was first announced, the CEO had said in a press conference that they probably didn’t need all of the brands but didn’t have any plans to shed any of them any time soon. Now he’s getting pressure – both internal and external – to make a different decision. With the acquisition complete, is it time to prune the portfolio?